Is "tax haven" still safe?
The so-called tax havens, such as the Bahamas, the Cayman Islands, the Virgin Islands, Luxembourg and Switzerland, have some common points:
Only a very small annual management fee is charged for the registration and establishment of a company.
High confidentiality should be given to shareholders'information, equity ratio and earnings status of the company.
No tax or very low tax burden;
No foreign exchange control;
Easy regulation.
At the same time, companies established in these countries (regions) are recognized by almost all major international banks and can open accounts in banks.
It is estimated that the assets of these tax havens exceed $21 trillion, most of which are not under the jurisdiction of tax collectors. As a result, a wave of "invisible rich" who want to hide wealth, evade taxes and even launder money come to these tax havens.
Today, these "paradises" have become one of the signatories of CRS.
China's New Tax Law Introduces Anti-tax Avoidance Provisions
Tax authorities of various countries jointly share CRS personal financial information to combat overseas tax evasion and money laundering. According to data released by OECD, China has been "paired" successfully with more than 60 countries and regions under MCAA, and the automatic exchange of information has been formally "activated". In more than 60 countries, there are many tax havens such as the British Virgin Islands, Cayman and Bermuda.
In order to prevent individuals from evading tax obligations through related party transactions, offshore structures and other special arrangements with unreasonable commercial purposes, and to give China's tax authorities a strong legal basis, China's new tax law adds new anti-avoidance clauses.
Recently, the much-concerned amendment of the Personal Income Tax Law was passed by the Standing Committee of the National People's Congress and will be fully implemented on January 1, next year. Among them, the anti-tax avoidance clause introduced for the first time means to strengthen the collection and management of high net worth people, which has attracted much attention.
According to the revised tax law promulgated by China National People's Congress, the new anti-tax avoidance clause is Article 8. In any of the following circumstances, the tax authorities shall have the right to make tax adjustments in accordance with reasonable methods:
Business contacts between individuals and their affiliates do not conform to the principle of independent transactions and reduce the amount of tax payable by individuals or their affiliates without justification.
Enterprises set up in countries (regions) where the actual tax burden is obviously low, which are controlled by residents'individuals or by residents' enterprises jointly, shall not distribute or reduce the profits attributable to residents'individuals without reasonable business needs.
Individuals obtain improper tax benefits by implementing other arrangements that do not have reasonable commercial purposes.
If the tax authorities make tax adjustments in accordance with the provisions of the preceding paragraph and need to collect additional taxes, they shall collect additional taxes and collect interest according to law.
For example, China's Individual A invests overseas through the shell company BVI (tax haven Virgin Islands):
Under the current tax law, as long as the profits of BVI company are not distributed to the level of individual shareholders, individual A does not need to pay taxes.
Under the anti-tax avoidance clause: China's tax authorities may, in the name of controlled affiliated companies, tax the profits made by BVI companies without commercial substance as those made directly by individuals.
Therefore, the establishment of the anti-tax avoidance clause in the new tax law will give the Chinese tax authorities a strong legal basis, cooperate with the information of overseas financial assets received under CRS, and push the compliance and fairness of China's personal income tax into a new situation.
In addition, the Draft Amendment to the Individual Income Tax Law (Draft) draws lessons from international practice, explicitly introduces the concept of residents and non-residents, and adjusts the criteria for judging residents and non-residents to 183 days from one year of residence in China, which makes it more difficult for foreign individuals to implement tax avoidance arrangements through tax resident status planning.
PricewaterhouseCoopers experts said that the introduction of individual anti-tax avoidance clauses would prevent individuals from evading tax obligations through unreasonable business purpose related party transactions, offshore structures and other special arrangements. It is suggested that high net worth persons with the above tax-related arrangements should actively pay attention to the implementation rules of this clause, fully review the existing tax-related arrangements, identify potential tax risks as soon as possible, and take necessary measures to ensure the effectiveness and compliance of the overall tax affairs of individuals under the new tax law.